Govt blacklists 300,000 directors of shell companies

The corporate affairs ministry will also track down owners of suspected shell companies and take penal action against those who divert funds from firms that are struck off the records of Registrar of Companies

Mumbai: The government on Wednesday decided to bar as many as 300,000 directors of companies that have defaulted on statutory compliances from serving on the boards of other firms to improve corporate governance and check financial irregularities through the use of shell companies.

The ministry of corporate affairs, which regulates unlisted companies, also decided to track down the beneficial owners of suspected shell companies and take penal action against those who divert funds from companies that are struck off the records of the Registrar of Companies (RoC).

The ministry said it is also monitoring the action being taken by regulatory bodies against professionals such as chartered accountants, company secretaries and cost accountants who have been found to have colluded with the shell companies in committing financial irregularities.

The move came a day after the government froze the bank accounts of more than 200,000 companies struck off the records of RoC to prevent their directors from accessing the accounts.

The idea is to ensure companies take their statutory obligations seriously and to deter firms from using a complex corporate structure to divert funds raised from financial institutions or to launder money.

“Weeding out shell companies would not only help in checking the menace of black money but also would promote an ecosystem of ‘ease of doing business’ and enhancing investors’ confidence to which the present government is fully committed,” minister of state for corporate affairs P.P. Chaudhary said in a statement. He took charge on Monday.

Filing annual reports on time will minimize the possibility of fraud and tax evasion, the statement said, adding that it will also protect stakeholder interest and improve India’s image globally. At a review meeting on Wednesday, the ministry decided to take comprehensive steps to address the issue of shell companies and their role in money laundering and circulation of unaccounted money, the statement said.

The government’s move is a clean-up exercise mainly targeting shell companies suspected of money laundering in the aftermath of the 8 November demonetization of high-value currency notes, said Kamlesh Vikamsey, former president of the accounting rules maker, the Institute of Chartered Accountants of India.

“The government will take action against companies which have not complied with the Companies Act and not filed returns for the past three years. However, the decision to strike off companies’ name from records can be reversed if the companies are able to prove that they were operational in all these years,” said Vikamsey.